02 August 2007

Interesting Personal Jurisdiction Case

A couple in Pennsylvania receives advertisements from a Barbados hotel at their home, and then books a trip including a massage there before they leave. In Barbados, the husband is hurt falling off a massage table due to the negligence of the massage staff.

The couple sues the hotel in Pennsylvania for negligence in Pennsylvania state courts. The hotel removes the case to federal court. The federal trial court dismisses the case for want of personal jurisdiction. And, today, the United States Court of Appeals for the 3rd Circuit, reverses.

The 3rd Circuit holds that the district court has personal jurisdiction because the injuries arose out of duties identical to those imposed by a contract for personal services formed in Pennsylvania, but remands the case to consider a forum non conveniens motion not considered by the trial court because the personal jurisdiction ruling made its resolution unnecessary. How Appealing highlighted the case today.

While this case involved a Barbados hotel, its reasoning would apply to any personal injury arising out of services booked from a U.S. state anywhere in the U.S. or abroad which led to a personal injury, although, as discussed below, the impact on domestic cases is mitigated by venue rules.

The 19 page opinion, moreover, struggles at length with the mushy nature of personal jurisdiction law. There is a circuit split regarding the law on the issue, and the court in its own ruling, is as vague as it can manage to be about the standard in its own circuit while still resolving the question presented to it. The opinion also notes that even if the case is tried in Pennsylvania, that the substantive law of Barbados might be applied. Furthermore, if the case is dismissed on the basis of the forum non conveniens doctrine, an option the reluctant 3rd Circuit suggests might be an appropriate resolution of the case, then the case will likely be appealed again, but on a second appeal the review would likely be for "abuse of discretion" by the trial judge, rather than a "de novo" review of a question of law without deferring to the trial judge's ruling.

If this resort had been in Hawaii rather than Barbados, removal to federal court would have been swiftly followed by a successful motion to change venue to the United States District Court for the District of Hawaii, under 28 United States Code Section 1391. This venue statute provides in a case where there is a U.S. District Court which has jurisdiction and the case does not involve an "alien", a case based upon diversity of citizenship must be brought either in a judicial district where a defendant resides, or in a judicial district where "a substantial part of the events or omissions giving rise to the claim occurred." The procedural stance of the case would be somewhat more complicated than if the case has been brought in Hawaii in the first place, but the end result would probably be the same -- the case would likely have been decided by a Hawaii jury applying Hawaii law before a judge who very likely spent his legal career as a Hawaii lawyer before being appointed to the federal bench.

The desire of the couple to have their case tried in Pennsylvania is not surprising. Of course, it is cheaper for them to litigate in Pennsylvania, and more expensive for the Barbados defendants to bring their witnesses 1,200 miles to the U.S. Court. In Barbados, the substantive law establishing a standard of liability would probably be similar to that in Pennsylvania, with both recognizing some sort of claim for injuries as a result of negligent conduct. But, in Pennsylvania, liability and damages, quite possibly including damages for pain and suffering, will be determined by a Pennsylvania jury, instead of a Barbados judge ruling without a jury, who is probably predisposed to be favorable to the hometown defendant and is unlikely to make a substantial award of pain and suffering damages.

Of course, if the case doesn't settle, and the couple gets a judgment in a Pennsylvania federal court, they will still have to enforce their judgment, which may be a less than straightforward task when the defendant has no office or tangible assets in the United States. Jurisdiction issues may end up being re-litigated when the time comes to enforce any judgment in Barbados, if U.S. assets can't be located. Still, the Barbados company would be at a disadvantage at that point after having litigated the jurisdiction issues in U.S. courts. Indeed, allowing a default judgment to enter in the U.S. and then litigating jurisdiction for the first time when it is time to enforce the judgment might have been a wiser course of action for the hotel, although that approach would have put any U.S. intangible assets of the hotel, like accounts receivable from U.S. tourists, at risk indefinitely.

Did the 3rd Circuit get it right?

In this case, this resolution, particularly if the trial court grants motion to dismiss on forum non conveniens grounds which is affirmed on appeal, certainly will make the case much more expensive for everyone involved to resolve, and the case also creates increased uncertainty on the part of anyone doing business with the United States from abroad. For example, foreign hotels and spas might decide based upon this ruling to require that arrangements beyond hotel reservations can be made only in advance.

It also isn't clear why there wasn't a forum selection clause in the contract between the hotel and the couple, or if there was one, why it wasn't enforced. If a forum selection clause in a contract could resolve this case, one expects that those provisions will soon become the norm, because no casual holiday taker is going to haggle over that piece of fine print in a hotel contract. Once burned, twice shy.

The virtue of the 3rd Circuit decision making the choice of forum in this case a non-jurisdictional issue, is that, in some future case, it might be desirable for the doors to be open to the U.S. courts. For example, maybe a U.S. forum would make more sense if an American was injured in connection with a contractual undertaking in Somolia, whichg has no functioning court system, involving an entity which had U.S. based intangible assets. Whether this is worth the resulting uncertainty is hard to know.